Occasionally we find a delectable property that is owned, alas, in a C-Corporation by some unfortunate chaps. C-Corps that have real estate operations as the primary line of business face significant tax issues when liquidating assets.
The challenge for these C-Corps is that the gain-on-sale is taxed at corporate rates including federal, state and local, rather than the capital gains rate. Thus, a C-Corp might pay a 45% aggregate corporate tax rate on the gain-on sale as opposed to a 15% capital gains rate.
Owners of the C-Corps would prefer to sell the C-Corp rather than the underlying commercial real estate asset(s). However, buyers of these problematic C-Corps are tough to find. As David Stone, President of Stone Capital Advisors explains, “Buyers are seldom interested in buying shares of a corporation owning real estate because they would inherit the lower cost basis and forgo any depreciation write-offs.”
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